Prosecutors Try to Prove Incentive for Insider Tips

At the end of 2007, Rajat K. Gupta had an investment in a Galleon Group fund worth $16.4 million. Less than a year later, his stake in the fund was wiped out.

Mr. Gupta’s lawyers have argued that he and Raj Rajaratnam, the former head of the now-defunct Galleon Group hedge fund, had a falling out over the fund’s collapse and as a result, Mr. Gupta had no reason to leak corporate secrets to Mr. Rajaratnam.

But on Wednesday, prosecutors highlighted Mr. Gupta’s investment in the fund, called Voyager Capital Partners, to show that he had a financial incentive in providing Mr. Rajaratnam with inside information.

The government has charged Mr. Gupta, a former director of Goldman Sachs and Procter & Gamble, with providing confidential information about those two companies to Mr. Rajaratnam, who traded stocks based on the insider tips. The jury trial, now in its third week, is in Federal District Court in Manhattan before Judge Jed S. Rakoff. On Thursday, the government is expected to wrap up its case and the defense will begin calling its witnesses to testify.

Mr. Gupta initially invested $5 million in Voyager, which was formed in 2005. He then exercised an option to increase his stake to $10 million, according to Isvari Mahadeva, a former Galleon employee who testified for the government. Voyager was a so-called fund of funds that invested in several Galleon funds.

THE GUPTA CASE

The prosecutors accused Rajat K. Gupta, a ex-director of Goldman Sachs and Procter & Gamble, of leaking boardroom secrets about those two companies to Raj Rajaratnam, the convicted money manager.The defense have emphasized that the government had no wiretapped recordings of Mr. Gupta providing secret information. They portray Goldman as a sieve of information.

Insider Trading: Multimedia

The government showed evidence on Wednesday that several of those other funds had investments in Goldman Sachs. Mr. Rajaratnam has been convicted of insider trading based on the information he gleaned about Goldman and other companies.

Voyager performed brilliantly at first, returning about 41 percent annually in its first couple of years. But the $400 million fund, which was highly leveraged, blew up during the financial crisis.

Much of the testimony on Wednesday about Voyager related to a complex dispute that Mr. Gupta and Mr. Rajaratnam had over the value of Mr. Gupta’s investment in the fund. At issue was whether Mr. Gupta’s profits on his increased stake would accrue from the inception of the fund or on the date he exercised his option. A spreadsheet showed that Mr. Rajaratnam eventually agreed to the higher number, putting Mr. Gupta’s stake in the fund at $16.4 million, or about $4 million more than the lower valuation.

The government called several other witnesses on Wednesday, most of whom were used to introduce documents into evidence. At one point, Judge Rakoff described the slow proceedings as “excruciating.”

In one of the more unusual moments of the trial, Judge Rakoff asked a law student who has been attending to stop sending him letters about the case.

During a break, a courtroom deputy asked Benula Bensam, who had just completed her second year at Benjamin M. Cardozo Law School in New York, to participate in a private conference with Judge Rakoff and the lawyers for both sides.

It was unclear in court what the brief discussion was about, but in an interview outside of the courthouse, Ms. Bensam explained.

She said that she developed a passion for the federal rules of evidence while taking a class on the subject last semester, and wanted to attend a white-collar criminal trial. Besides, she said, she had not landed a summer job, so she believed watching the case would be a productive use of her time.

“I’m an optimistic person, and if you can’t get an education in one respect, there are other things to do,” Ms. Bensam said.

She said that she had sent three letters to Judge Rakoff about various evidentiary rulings that he had made in the case, posing questions about some and disagreeing with others.

On Monday afternoon, as the jury listened to testimony from Lloyd C. Blankfein, the chief executive of Goldman Sachs, a federal marshal approached Ms. Bensam in the spectator’s gallery and asked her to leave the courtroom. She said that several marshals interrogated her for about a half-hour and accused her of trying to improperly influence the judge.

“That was certainly not my intention,” said Ms. Bensam, who lives in Woodside, Queens. “They were very aggressive and totally misconstrued what I was trying to do.”

Ms. Bensam, 24, said that during the sidebar with Judge Rakoff and the lawyers, the judge politely told her that she should not write him any more notes because it could create the perception that she was trying to influence the case’s outcome.

“I didn’t think I was doing anything wrong,” she said. “But now I know.”

Alex Stein, her evidence professor at Cardozo, said that Ms. Bensam was a very bright student who stood out in his large class of 123 students. But he acknowledged that Judge Rakoff was correct to reprimand her.

“When she takes a class in professional responsibility next year she’ll learn that this was something she shouldn’t have been doing,” Mr. Stein said. “But she was well intended, and on some level I like the passion.”

A version of this article appears in print on 06/07/2012, on page B4 of the NewYork edition with the headline: Prosecutors Try to Prove Incentive for Insider Tips.